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Best Buy Latest Retailer To Disappoint, Gives Soft Profit Outlook

Consumer electronics retailer Best Buy ( BBY ) early Tuesday posted better-than-expected first-quarter sales and earnings, but its soft earnings outlook and the exit of the company’s chief financial officer set investors on edge. Best Buy stock was down 7%, near 31, in early trading on the stock market today . The Richfield, Minn.-based company earned 44 cents a share excluding items on sales of $8.44 billion in the quarter ended April 30. Analysts polled by Thomson Reuters expected 35 cents and $8.29 billion. On a year-over-year basis, earnings per share rose 19%, but sales slipped 1%. For the current quarter, Best Buy is targeting EPS of 40 cents on sales of $8.4 billion. Analysts were modeling 50 cents and $8.31 billion. Best Buy also announced that CFO Sharon McCollam is stepping down on June 14 but will remain with the company in an advisory capacity through the fiscal year ending Jan. 28. Corie Barry, a 16-year veteran of Best Buy and its current chief strategic growth officer, will become the company’s chief financial officer at the conclusion of Best Buy’s annual shareholder meeting, set for June 14. Best Buy CEO Hubert Joly said strong growth in wearable fitness devices, home theater and appliances was offset by continued weakness in mobile phones and tablets in the first quarter. McCollam said she expects slight declines in revenue in the first half of the fiscal year, followed by growth in the back half. “We recognize this will be challenging without a strong mobile cycle and improvements in (consumer electronics) categories overall,” she said in a statement . Best Buy is the latest U.S. retailer to deliver disappointing Q1 reports. Others include Kohl’s ( KSS ), Macy’s ( M ), Nordstrom ( JWN ) and Target ( TGT ). RELATED: In a dark quarter for retailers, Wal-Mart shines What TJX’s Killer Quarter Means For Retailers .

Amazon Looks Primed To Disrupt Wal-Mart, Target, CVS, Walgreens

A major expansion by Amazon.com ( AMZN ) into private-label goods, which could come this month, elevates its ability to further challenge legacy retailers across the board. Cowen analyst John Blackledge estimates Amazon will be the No. 2 player in the $425 billion consumable market, excluding food and beverage, surpassing  Walgreens Boots Alliance ( WBA ), CVS Health ( CVS ) and Target ( TGT ) but still lagging well behind market leader Wal-Mart ( WMT ). He defines consumables as four segments: personal care products, household products, baby products and pet products. Blackledge also estimates Amazon will be a top-10 player in the $785 billion food and beverage grocery market by 2019. “We are encouraged by Amazon’s growing footprint in this category, which we see as ripe for potential disruption, given younger demos increasingly purchasing grocery items via digital channels,” Blackledge wrote. The leader in the food and beverage category is Wal-Mart, followed by Kroger ( KR ), Albertsons/Safeway and Costco Wholesale ( COST ). Last week, the Wall Street Journal  cited people familiar with the matter as saying Amazon is set in the coming weeks to roll out new lines of private-label brands that will include its first broad push into perishable foods. According to the Private Label Manufacturers Association, sales of private-label store brands in the U.S. topped $118 billion in 2015, with supermarkets and drug chains accounting for over $70 billion of the total. In the grocery and consumables market, Blackledge says, Amazon’s growth has come at the expense of Wal-Mart, Target. Walgreens and CVS. Amazon’s key competitive advantage is its multiplatform approach with Amazon Prime, which includes same-day delivery for many goods, “all of which should lead to rising number of consumers skipping the trip to the local supercenter, drug store or grocery market,” he wrote. Amazon has sold private-label products since 2009, primarily under the AmazonBasics brand, though that effort has concentrated largely on consumer electronics. Amazon stock rose 0.6% to 702.80 in the stock market today . Amazon stock hit an all-time high of 722.45 on May 12. It carries a strong IBD Composite Rating of 94, putting it among the top 6% of all stocks on key metrics such as revenue growth. Walgreens climbed 1.3% but CVS fell 1.5%. Target climbed 2.4%. Wal-Mart advanced 1%, hitting a nine-month high intraday, after spiking nearly 10% Thursday on strong earnings and same-store sales.

PayPal Stock Undercuts Key Levels As Investor Day Fails To Ease Fears

PayPal ( PYPL ) shares fell Thursday, after the digital payments giant’s investor day showcased ambitious plans but failed to alleviate Wall Street’s fears of competition. Management emphasized the breadth of the platform, covering not only the traditional online payment capability but newer technologies at point of sale, ATMs, social media and customized applications for merchants. Executives hope to entice consumers to put more of their spending through PayPal by offering budgeting and money-management capabilities, while enticing merchants with the PayPal Credit offering. The OneTouch payment app has also taken off as a response to the increasing number of purchases made over mobile phones. Management also discussed the rise of “contextual commerce,” the trend toward technologies predicting consumer buying habits and bringing products to the consumer rather than the consumer going out and seeking them. Repeatedly, they pointed to the sheer size of PayPal’s network, after 17 years of existence, as bringing a key advantage over competing platforms in penetrating these new markets. However, Pacific Crest analyst Josh Beck wasn’t so sure. “PayPal highlighted a dramatic shift in commerce, underscored by diverging performance at Target ( TGT ) and Amazon ( AMZN ), which creates opportunity and risk,” Beck wrote in a research note. “Whether PayPal will be able to retain its competitive moat as Apple ( AAPL ), Amazon, Stripe and Visa ( V ) focus on mobile and contextual commerce remains unclear to us.” Beck retained a sector weight rating on PayPal stock. Margins Remain A Concern Management affirmed previous financial guidance, including that profit margins will be “stable to up.” Pretax margins took a definite hit last year as the company has invested in new projects, such as the recently acquired financial-remittance company Xoom. “While we believe management did an exceptional job explaining Paypal’s differentiation (serving both consumers and merchants; expanding relevance by providing solutions from Braintree, Paydiant, PayPal, Xoom and Credit), an intensifying competitive landscape, combined with the company’s margin outlook remain our biggest concerns,” wrote Sterne Agee CRT analyst Moshe Katri in a research note affirming his neutral rating. Credit Suisse analyst Paul Condra, who holds a buy rating on the stock, emphasized the positive. “Our conviction on the stock was strengthened from (1) commentary that the credit business is not more than high single digits percent of profit (well below speculation of around 25%) and will likely not grow beyond 2% to 3% of payment volume; and (2) increased visibility on growth outlook as management expects to double payment volume in four years, implying 20% total payment volume growth through 2019,” Condra wrote. PayPal stock fell 3.4% to 37.65 on the stock market today . It was seventh straight decline for the stock, which is now below entry points at 40.03 and 38.62. Apple stock fell 0.4% Thursday, while Visa dipped 0.7% and Amazon climbed 0.15%. RELATED: Apple Pay Rival MCX, Visa Loom At PayPal Analyst Day